Friday, April 20, 2012

The Hottest Growth Stock of the Past 25 Years? You'll Never Guess!

Source: NASDAQ.com

In an HBR blog post this week,
Bill Taylor asks the question: What's the highest performing stock in
the United States since the 1987 market crash? Is it Starbucks?
Microsoft? Apple? GE? How about a company named Fastenal? What?
Fastenal? Many readers won't even know what they do. Fastenal is the
leading distributor of nuts and bolts in the United States. Yes, you
read that correctly. Nuts and bolts. The company's stock has risen
38,565 percent since October 1987. Taylor explains that Fastenal has
been successful because it has been "deeply committed to a one-of-a kind
strategy." I don't disagree at all. However, I think there is more to
the story.

Fastenal is a retailer/distributor, with
2,600 stores at which they sell their products. Of course, we all know
the story of many brick-and-mortar retailers that have seen their
businesses fundamentally disrupted in the Internet age. We have all
watched as Netflix and RedBox delivered a one-two punch to Blockbuster,
for example. However, Fastenal has done an amazing job of innovating
its business model before someone else came along to disrupt them. On
the one hand, they have brought the Red Box model to the fastener
business. According to the 2011 President's Letter:

In
2010, we installed 1,358 machines, representing a 240% increase over
2009. In 2011, we picked up the pace and installed 5,528 machines, an
increase of 287% over the 2010 number. Why are so many customers
utilizing our FAST SolutionsSM (industrial vending)? I believe it’s
simply a better way to buy industrial supplies. Think of it as a fully
customized and automated Fastenal store within the customer’s location.

On the other hand,Fastenal has embraced the internet as well. According to the Annual Report, "Fastenal.com
generated an average of 1.15 million visitors per month in 2011 (up
from 727,000 per month in 2010), and the value of our web orders grew
more than 500%."

How many brick-and-mortar
retailers have done that type of remarkable job reinventing themselves,
while not at all denigrating the service provided to customers in their
traditional retail locations? To me, that ability to reinvent, while
maintaining and enhancing the core business, is what makes Fastenal
stand out.

Michael Roberto

The Great Courses

About Me

I am the Trustee Professor of Management at Bryant University in Smithfield, RI. I joined the faculty after serving for six years on the faculty at Harvard Business School.

My research, teaching, and consulting focuses on leadership, with a particular emphasis on decision-making and teams. I have published two books based upon my research: Why Great Leaders Don't Take Yes For An Answer (2nd edition to be released in May 2013), and Know What You Don't Know (2009).